The political fears of 'free China'

As Taiwan becomes economically integrated with mainland China, younger generations are increasingly anxious about their political future.

In the past few months, two large student-led protest movements have swept across Hong Kong and Taiwan.

In Taiwan, a proposed services trade agreement with mainland China triggered the student movement and led to the occupation of the country’s main legislative chamber for weeks.

In Hong Kong, the protests are against Beijing hand-picking candidates for its ‘democratic’ elections.

These two events are redefining China’s relations with two places that Beijing regards as “inalienable” parts of the People’s Republic. There is a new awakening of civic identities in Hong Kong and Taiwan.

Young protesters’ grievances are not only political but also economic, as the economies of Taiwan and Hong Kong integrate ever closer with that of mainland China. There is palpable anxiety as well as antipathy towards greater unification with the immensely powerful and authoritarian Beijing.

With these questions in mind, China Spectator spoke to Sean Chen, a senior advisor to the President of the Republic of China (Taiwan) Ma Ying-Jeou and a former Premier.

Chen has a long and distinguished career as a banker and regulator. He fought and won considerable concessions for Taiwanese financial institutions to enter the much-coveted market in mainland China when he was the chairman of Financial Supervisory Commission.

Chen says he understands that some students and young people are “anxious and uncertain” about the proposed new services trade agreement with mainland China. But he defends the agreement, saying it is overwhelming positive for Taiwan and it is unavoidable that it will have some less than favourable provisions in the agreement.

The former Premier says Taiwan cannot escape its geopolitical location. “Taiwan is surrounded by major economic powers like Japan, Korea and mainland China and if you move south, there is the ASEAN. We cannot afford to live a relaxed lifestyle like Fijians or Marshall Islanders even if we respect their values,” he says.

Taiwan has arguably one of the most integrated economies with mainland China; over 40 per cent of its export go there.

Many people in Taiwan are worried about the country’s rapid economic integration with China. Chen says the concern about the dependency on China is warranted, but it is a reality that Taiwan must confront.

“Many economies in the world are in the process of integrating with mainland China. If it is unavoidable, we must take the challenge head-on,” he told China Spectator. He believes the key is to encourage more inclusive growth and better explain the situation to young people.

At the moment, Taiwanese exports to China mainly consist of semi-finished goods that will be re-exported to western developed markets after final assembly in Taiwanese-owned factories. However, Chen believes this business model needs to be updated urgently.

“When I was the Premier, I wanted people to focus more on design in Taiwan instead of talking about ‘made in Taiwan’ all the time. If we want to play a more important role in the global value chain, we must upgrade ourselves from just being a manufacturer,” he says. “We will have a dim future if we keep on exporting semi-finished products to mainland China.

When Chen was Chairman of the Financial Supervisory Committee, he pushed for better access for Taiwanese financial institutions in mainland China. He says Taiwanese and Chinese banks specialise in different areas and don’t compete against each other directly. The key advantage for Taiwanese banks lies in servicing small and medium sized enterprises.

“Taiwan has 1.23 million enterprises and 99 per cent of them are SMEs. Taiwanese banks are very experienced in dealing with SME customers. Chinese bankers told me that they usually work with large corporations like state-owned enterprises and don’t know much about SMEs,” he says.

Chen, a senior banking industry executive, also thinks Taiwan is uniquely positioned to take advantage of Beijing’s push to internationalise its currency, the Renminbi or yuan.

Interestingly, Canberra and the Australian financial industry are also fighting for the opportunity to establish Sydney as a regional yuan hub.

The former Taiwanese Premier thinks four cities have a realistic chance of becoming regional hubs for yuan trade: Hong Kong, Singapore, London and Taipei.

“I think Taiwan is uniquely positioned. We need central banks from across the straits to push harder on this issue. Mainland China’s trading relationship with the UK and Singapore is relatively small in comparison with Taiwan. Our trading relationship is strong and we have a lot of yuan-denominated assets,” he says.

Taiwan has the world’s second largest pool of yuan assets after Hong Kong. Chen sees new financial opportunities in RMB bond issuance and lending for Taiwan.

But what about the sensitive issue of the political status of Taiwan? Chen, a trained lawyer, offers a very legalistic answer. Under the constitution of the Republic of China or Taiwan, it still sees itself as the legitimate government for the whole of China including the mainland area.

“It is clear under our constitution -- the Republic of China has two areas, Taiwan and the mainland area. I am sure that people in Beijing are happy to see this interpretation,” he says.

During the Cold War, Taiwan regarded itself as the “free China” versus the communist occupied mainland China.

As a non-active member of the ruling Nationalist Party, Chen thinks the party has no future in China. Though he thinks the party must localise in Taiwan for its own survival, he believes the Chinese Nationalist Party, as it is officially known, must also aim for a higher goal such as servicing a broader global Chinese community.

Chen also offers his thoughts on the emergence of street protests as a form of political participation in his homeland. He goes back to ancient Greek and Roman times to explain people taking to the streets.

“Direct participatory democracy is quite exceptional. People are tired of getting involved in voting and debating political issues every day and hence the emergence of representative democracy. From the perspective of human development, representative democracy incurs the lowest cost,” he says.

“If people regularly take it to street, it means the cost of political participation will get higher and higher. It is not ideal for the society or the country.”

Chen, with oblique reference to mainland China, thinks democratisation will happen once the economic development reaches a certain stage.

It is impossible to talk about China without mentioning its slowing economy.

Chen who spent decades at the Ministry of Finance in Taiwan thinks China’s economy will not run into major trouble, though inequality will provide ongoing tension.

“The key problem is the increasing polarisation of the society and ever widening gulf between haves and have nots,” he says. “Ironically, many of the issues predicted by Karl Marx are emerging in China. If China does not address the problem of inequality, it will grow worse as the economy develops.

“On the other hand, if it does not grow, the problem will be even worse.”

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